Ethereum Price Bleeds: Plunging Activity Sparks Inflation Fears

Ethereum price has experienced a decline that returned its value back to the levels observed during 2020. Ethereum currently performs worse than Bitcoin (BTC) alongside other significant altcoins within the market. Numerous analysts identify falling network operations combined with low transaction fees and poor ETH combustion as fundamental factors that diminish its value.

The network utilization of Ethereum continues to decrease continuously since January 2022. Active addresses on the network decreased while fees reached their lowest recorded point. Network transactions declining has resulted in a reduction of the network’s burn rate.

Ethereum’s burn mechanism was designed to remove ETH from circulation to control supply. However, with lower fees and reduced usage, less ETH is being burned. CryptoQuant analyst EgyHash commented on the situation, stating:

“Ethereum’s recent slump is primarily due to waning network activity, reflected in a drop in active addresses and lower transaction fees.”

Dencun Upgrade Leads to Higher ETH Supply

The transition to Proof-of-Stake (PoS) during the Merge was expected to make ETH deflationary. However, the Dencun upgrade, introduced last year, changed the supply dynamics. The upgrade reduced transaction costs, which made the network cheaper to use but also slowed down ETH burning.

As a result, more ETH is now being created than burned. With supply increasing, inflationary pressure has returned. Analysts warn that unless network activity rises, ETH’s price could remain under pressure.

Ethereum Price Declines as Market Sentiment Weakens

Ethereum price was trading at $1,801.69 at press time after falling 1.54% in the past 24 hours. Over the past seven days, it has dropped 6.93%, while its monthly losses have reached 16%. Since peaking at over $4,000, ETH has lost more than 60% of its value.

External factors have also affected the market. Recent trade tariff announcements in the United States have added uncertainty, leading to further price swings. With Ethereum already struggling due to low activity, market conditions have only made things worse.

Pectra Upgrade Scheduled for May 7

The Pectra upgrade is now set to launch on May 7, following a slight delay from its original late-April timeline. This update introduces 11 Ethereum Improvement Proposals (EIPs) designed to enhance network performance and refine the staking process.

The upgrade was tested on the Hoodi testnet, and developers confirmed the timeline after a successful trial. However, they cautioned that the date could still change if more testing is needed.

While Pectra is expected to bring improvements, it remains unclear whether it will boost network activity or reverse ETH’s inflationary trend. Until transaction volumes rise and more ETH is burned, the cryptocurrency may continue to struggle.